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S Korea's Underground Economy Larger Than OECD Average

by Mary Swire, Tax-News.com, Hong Kong

21 September 2016


South Korea's underground economy was an annual average of 10.89 percent of the country's gross domestic product (GDP), or around KRW161 trillion (USD143.7bn), in the period 1995-2014, according to a new study by Kim Jong-hee, a professor at Chonbuk National University.

He pointed out that this was significantly above the 6.65 percent average seen in the G7 group of countries (the United States, Canada, France, Germany, Italy, Japan, and the United Kingdom), as well as the 8.06 percent average experienced by the remaining members of the Organisation for Economic Cooperation and Development (OECD).

The consequent level of South Korean tax evasion during the same period, which was found to be 3.72 percent annually (or KRW55 trillion), was also higher compared to 2.21 percent in the G7 countries and 3.06 percent for the other OECD countries.

South Korea's relatively large non-taxed underground economy has been put down, in large part, to the operation of small businesses and self-employed professionals, such as doctors, lawyers, architects, accountants, and consultants, where transactions may be settled on a cash basis. Kim noted that such undeclared income leads to budget deficits, followed by higher burdens on the taxed economy that can restrict economic growth.

TAGS: individuals | compliance | tax | small business | business | value added tax (VAT) | tax compliance | law | professionals | self-employment | Korea, South | Tax | Tax Evasion

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